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Proprietary│Page1©2017HfSResearch
WebinarDigitalMarketIndex- MarketSize,ForecastandKeyHappenings
JamieSnowdonChiefDataOfficer,[email protected]
PhilFershtChiefExecutiveOfficer&[email protected]
December2017
OllieO’[email protected]
Proprietary│Page2©2017HfSResearch
Agenda• Theemergenceofdigital
• ThefinancialhealthoftheITServicesindustry
• Howandwhyprovidersareembracingdigital
• Isthedeclineinheadcountlevellingoff?
• Wrap-upandquestions
Proprietary│Page3©2017HfSResearch
Today’sSpeakers
Ollie O’DonoghueSenior Research AnalystHfS [email protected]
Jamie SnowdonChief Data OfficerHfS [email protected]
Phil FershtCEO and Chief AnalystHfS [email protected]
©2017 HfSResearchLtd.
©2017 HfSResearchLtd.
HfS– TheEvolution
0
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2010 2011 2012 2013 2014 2015 2016 2017
Annu
alSite
Visits
Num
bero
fEmployees
Employees SiteVisitors
HfSIndiaOpens
CambridgeUKHQOpens
BostonUSHQOpens
HfSBlueprintisLaunched
IntroducesRPAtoIndustry
FORALeadershipCouncilLaunched
©2017 HfSResearchLtd.
©2017 HfSResearchLtd.
FORASummitsin2018
NewYork– March7-82018
CambridgeUK– July32018
Bangalore– September182018
Boston– November2018
FormoreinfoaboutHfSFORASummmits,
Proprietary│Page8©2017 HfSResearchLtd.
It’sallaboutdatanow…
8%
7%
14%
13%
15%
15%
8%
11%
10%
12%
11%
12%
16%
18%
24%
25%
26%
27%
Driving out costs through process automation
Building relationships with external ecosystem and industry partners to drive innovation and growth
Micro targeting customers / hyper personalization and customization of products to customer requirements
Combating the threat of potentially disruptive digital competitors
Making more predictive decisions based on rapidly accessible real-time data across the organization
The shift toward digital/online/virtual experiences and away from physical/face-face engagements
Rank 1 Rank 2 Source: HfS Research, November, 2017Sample: Enterprise Buyers = 460
Whichofthefollowingbusinessdriverswillhaveamajorimpactonyourbusiness?Rank(ShowingTop2)
Source: HfS Research “Real Time Enterprise 2017” Sample: Enterprise Buyers = 460
Data explosion, digital disruption and increasing consumerism are the three main challenges that enterprise face in today’s business environment
Proprietary│Page9©2017 HfSResearchLtd.
Canyouestimatetheproportionofstructuredvunstructureddatainyourorganization?
Unstructureddataplaguesenterprises
0% 9%
40%
29%
20%
2%
0% / 100% 10% / 90% 25% / 75% 50% / 50% 75% / 25% 100% / 0%
Only22%oforganizationshavemore
thanhalftheirdatastructured
Source: HfS Research, November, 2017Sample: Enterprise Buyers = 460
Proprietary│Page10©2017 HfSResearchLtd.
Two-thirdsofenterprisesnowview“Digital”asdrivingnewrevenuestreamsandcustomerexperiences Whichofthefollowingstatementsmostcloselyresemblesyourcurrent
organizationalleadership’sviewonyour'DigitalTransformation'strategy?
1%
13%
20%
32%
35%
Wedon'thaveavisionfordigitaltransformation
“It’saboutCREATINGNEWREVENUESTREAMS”
“It’saboutALIGNING/HARMONIZINGBUSINESSOPERATIONStocustomerneeds”
“It’saboutCREATINGNEWCUSTOMEREXPERIENCES”
“It’saboutINVESTINGIN"NEWIT"
a) “It’s about INVESTING IN "NEW IT" (e.g., get technologies deployed like mobile platform, a cloud platform, infrastructure, etc.)
b) “It’s about CREATING NEW CUSTOMER EXPERIENCES” (e.g., having the coolest use of innovative new technologies like social, mobile, interactive, etc.)
c) “It’s about CREATING NEW REVENUE STREAMS” (e.g., commercial leverage of digital channels, such as mobile, interactive tech, social media, etc.)
d) “It’s about ALIGNING / HARMONIZING BUSINESS OPERATIONS to customer needs” (i.e., all organizational touchpoints, processes, systems and technologies are driven by the customer experience strategy, from front office to back office)
e) “We don’t have a digital vision”Source:HfSResearch,“JourneytotheOneOffice,November2017”
Sample:n=395EnterpriseBuyers
Proprietary│Page11©2017 HfSResearchLtd.
Digitaldisruptionisrampant:29%havealreadyseentheirtop2competitorschangeinjustpastthreeyears
Doyoubelievethatthey(yourcompetitors)willbethesamein2020?
Source:HfSResearch,“JourneytotheOneOffice 2017”Sample:n=395EnterpriseBuyers
Areyourtop2competitorsthesamenowasin2014?
No
29%
Yes71%
No
37%
Yes63%
Proprietary│Page12©2017 HfSResearchLtd.
Enterprisesseemoreopportunitiesthanthreats
Proprietary│Page13©2017 HfSResearchLtd.
Howmuchdamage(revenueloss,customerchurn,highercustomeracquisitioncosts,lowermargins)aredigitallynativecompetitorsinflictingonyourbusiness?
7% 15%
20%
35%
22%
8% 15%
31% 29%
16%
Existential damage Significant damage Some damage Limited damage No damage
In the next 2-3 years Now
DamageDeclines
Only22%fearnotabledamagetotheirbusinessinthenext2-3years
Majorityofenterprisesaredeerinheadlightswaitingtogetflattenedbydigitally-savvycompetitors
Source:HfSResearch,“JourneytotheOneOffice,November2017”Sample:n=395EnterpriseBuyers
Proprietary│Page14©2017 HfSResearchLtd.
Howsignificantlyisyourfirm’scultureholdingbackprogresswhenitcomestomakingrealinvestmentsindigitalbusinessmodels?
Organizationalcultureholdsbackhalfofenterprisesinachievingprogresswithdigitalbusinessmodels
15% 15%
21%
35%
14%
Promotesandfostersdigital
Doesnotholdback Neutral Somewhatsignificantly
Highlysignificantly
Source:HfSResearch,“JourneytotheOneOffice,November2017”Sample:n=395EnterpriseBuyers
Recognition of organizational challenges helps to conquer the challenges. 51% of the highest performing enterprises see their cultures as holding them back in the digital transformation journey
Proprietary│Page15©2017HfSResearch
Howwouldyoubestdescribeyourcurrentprimaryserviceproviderinrelationtoyourdigitaltransformationjourney?
“TraditionalOutsourcing”isacommodity.Partnershipsarethenewnormforservices
Source:HfSResearch,“JourneytotheOneOffice,November2017”Sample:n=395EnterpriseBuyers
Proprietary│Page16©2017HfSResearch
Jamie SnowdonJamie Snowdon has primary responsibility for overseeing the development of HfS’ Quarterly Market Index, in addition to managing and developing the firm’s data-centric products and services. He works across the HfS analyst teams to define evolving services markets and create market size estimates and forecasts. He also manages HfS’ quantitative survey and benchmark data.
Jamie has over seventeen years experience in the IT and Business Services industry. In that time he has worked in a variety of roles including sales, marketing, consulting and as an industry analyst. Jamie’s analyst career has largely been spent conducting data analysis including market size/forecast models, quantitative/qualitative survey analysis and competitive analysis.
Prior to HfS, Jamie worked for UK-based analyst firm Nelson-Hall as a Research Director, conducting vendor and market analysis within the IT and Business Services community. Prior to Nelson-Hall, Jamie spent seven years at IDC, where he was the European consulting director for IDC’s services group, managing all of their bespoke research. Jamie specialised in delivering custom market forecast models and forecasting tools tailored to his client’s individual needs. In addition, Jamie ran IDC’s European outsourcing research, covering both IT and business process outsourcing. Jamie has wide industry knowledge covering IT consulting, enterprise applications, IT & business process outsourcing, desktop & network services, equipment maintenance, and business continuity.
Earlier in his analyst career, Jamie spent four and a half years at the IT services research specialist INPUT in a mixture ofmarketing and analysis roles. He left as the UK operations manager having spent two years as a customer services industry analyst. Jamie completed his graduate training at one of the UK’s leading electronic and IT distribution companies.
Jamie’s passion is learning; he holds university degrees in general science (computing), law and has a post graduate diploma in legal practice. He lives in Twickenham, London, with his wife and two daughters. His other loves include cycling, reading trashysci-fi, cool technology, and the perfect pint.
Proprietary│Page17©2017HfSResearch
Ollie O’DonoghueOllie O’Donoghue is Research Director, IT Services.
With over five years experience in the IT services industry – as both a practitioner and a research analyst –Ollie understands the impact IT services have in the modern business environment.
Before joining HfS, Ollie was the Head of Research and an Industry Analyst for an ITSM Practice committed to providing IT Service and Support Organisations with the resources to deliver greater business value. There he developed a comprehensive research portfolio for the industry. He has researched and presented on a multitude of topics including automation, innovative support models, and real-time analytics. In 2017, Ollie was named second on a list of IT and ITSM experts to watch.
Before becoming an analyst, Ollie worked as an IT service professional in a large public sector organization. It was here that Ollie’s passion for the industry developed.
He graduated from the University of Kent with a Bachelor’s in History. He is also a certified Service Desk Manager with higher mastery. Among his eclectic collection of professional certifications, he has four advanced diplomas in ornamental aquatic fish care. He claims these landed him his first IT job as a member of the interview panel was an avid fishkeeper.
In his spare time, Ollie reads up on History, Geography, and Economics and spends an unfortunate amount of time playing strategy games on his computer. Ollie is partial to wheat beer and, in the right circumstances, Irish whiskey.
Proprietary│Page18©2017HfSResearch
IT Services is coming out of the financial wilderness
Prospects for IT Services providers are improving as the market recovers
Proprietary│Page19©2017HfSResearch
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Q42016
Q12017
Q22017
Q32017
AverageWeightedaverage
AverageQuarterlyGrowthfor75oftheLeadingITandBusinessProcessServiceProviderstoQ32017
Source:HfSanalysisofindividualcompanyfinancials(adjustedforacquisitionsoverhalftherevenueoforiginalcompany)Thegraphshowstheaverageandweightedaveragerevenuegrowthofthesetrackedproviders,whichrepresent75ofthelargest IT andbusinessservicecompanies.
Proprietary│Page20©2017HfSResearch
GlobalBPOandITServicesMarket2017
Source: HfS Research 2017 -4.0% -2.0% 0.0% 2.0% 4.0% 6.0%
F&ABPO
HRO
CustomerCareBPO
IndustrySpecificBPO
ApplicationDevelopment&Management
ProfessionalServices
OtherITServices
ITInfrastructureManagement
IT Services Markets:Declining Demand for Infrastructure Management Services Impacted Overall IT Services Market Growth Rates
BPO Markets: F&A BPO Continues to Grow at a faster rate
Growth Expected 2017
Proprietary│Page21©2017HfSResearch
Global BPO and IT Services Compound Annual Growth, 2016-2021
Source: HfS Research 2017
IT Services Markets
BPO Markets
-4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0%
F&ABPO
HRO
CustomerCareBPO
IndustrySpecificBPO
ApplicationDevelopment&Management
ProfessionalServices
OtherITServices
ITInfrastructureManagement
Proprietary│Page22©2017HfSResearch
Q32017ProviderPerformanceOverview- ZoomOut
Proprietary│Page23©2017HfSResearch
Q32017ProviderPerformanceOverview
Proprietary│Page24©2017HfSResearch
Digital Investments fan the flames of IT’s recovery
Providers are spending their way out by shoring up digital offerings
Proprietary│Page25©2017HfSResearch
KeyActivitiesfortheQuarter
n Significantdeals(July,August,September,October)⎼ BT: USGeneralServicesAdministration(15-Year,
$2,500M,InfrastructureOutsourcing)⎼ Accenture: Towergate(7-Year,$50M,Cloud);
Unilever(5-Year,$50M,Digital)⎼ Atos:UKMinistryofDefense(5-Year,$500M,
InfrastructureOutsourcing)⎼ Leidos :USDepartmentofVeteransAffairs (5-
Year,$6,800M,HRO);USDepartmentofHomelandSecurity(5-Year,$684M,Multi-ITO)
⎼ IBM:USArmy(3-Year,$135M,Cloud);UKDepartmentforEnvironment,Food&RuralAffairs(2-Year,$135M,Multi-ITO)
⎼ CGI:USDepartmentofState(5-Year,$900M,BPO)⎼ Indra:SubwayStations-Thessaloniki(5-Year,
$500M,Multi-ITO)
There were a number of significant events impacting theIT and business services market for the quarter
M&AandMajorcontractsn M&AActivity
⎻ DXC:Tribridge,Logicalis SMC⎻ SopraSteria:Galitt⎻ IBM:Cloudigo,Vivant⎻ Accenture:Altima,IBBConsulting,VERAX,WireStone,
ConcreteSolutions,PhaseOne,SearchTechnologies,BrandLearning,LabAnswer,Clearhead,Interpid,SolutionsIQ
⎻ CGI: SummaTechnologies,Affecto⎻ Capgemini:LyonsConsultingGroup⎻ Genpact:TandemSeven⎻ HPE: CloudTechnologyPartner⎻ Cognizant: Zone⎻ Deloitte:JKVine⎻ Teradata: StackIQ⎻ Atos:BreakawayGroup,PursuitHealthcareAdvisors,
HealthcareProviderConsulting⎻ Wipro:Cooper⎻ Tieto:Avega
Proprietary│Page26©2017HfSResearch
Others include CGI, Conduent, EXL, HCL Tech, Infosys, Mindtree, NTT Data, Tech Mahindra, Syntel, TCS, Tieto, Unisys
MarketingADM
IndustryFocused
Horizontalor
Functional-Focused
Primary Drivers of Jan to Oct 2017 M&A Activities
Primary Drivers of Jan to Oct 2017 M&A Activities(based on # of acquisitions)
Jan to Oct 2017 M&A Activities by Suppliers(based on # of acquisitions)
4
1
1
2
2
2
3
3
4
4
4
4
4
26
Others
Xerox->Conduent
DXC(HP+CSC)
DXC.Technology
WNS
CGI
HPEnterprise
Wipro
Genpact
Cognizant
IBMGS
Atos
Capgemini
Accenture
M&AActivityYTD(toOctober2017)
Proprietary│Page27©2017HfSResearch
Jan
Feb
Mar
Apr
May
Jun
July
Aug
Sep
Oct
arvato: Ramyam Intelligence Lab (Ramyam)Accenture: AltitudeAccenture: Solid-serVisionAtos: ESMHP Enterprise : Cloud CruiserWipro: InfoServerWNS: Denali Sourcing ServicesXerox -> Conduent: Conduent
Accenture: SinnerSchrader AGAccenture: EndgameAccenture: InvestTechCapgemini: TcubeGenpact: FiservHP Enterprise : Niara, Inc.IBM GS: Agile 3
Accenture: Davies ConsultingAccenture: First AnnapolisAccenture: Focus GroupAccenture: OCTO TechAccenture: Seabury GroupCA Technologies: VeracodeCapgemini: IteliosCognizant: Brilliant ServiceGenpact: Rage FrameworksTechMahindra: CJS Solutions GroupWNS: HealthhelpZensar: Keystone Logic
Accenture: ArismoreAccenture: GenfourAccenture: iDefense Security Intelligence Services Accenture: KuntsmaanAccenture: SinnerSchraderCapgemini: CiberDXC (HP+ CSC): DXCHCL Tech: Urban Fulfillment ServicesInfosys: Skytree
Accenture: MediaHiveAccenture: Monkeys & MaudGenpact: BrightClaimHappiest Minds: Cupola TechnologyIBM GS: XCC
Accenture: LabAnswerAccenture: Phase OneAccenture: Solutions IQAtento: Interfile Cognizant: TMG HealthInfor: BirstWipro: Drivestream
Accenture: ClearheadAccenture: IntrepidDXC.Technology: TribridgeMastech Digital, Inc. : InfoTrellis IncTeradata: StackIQ
Accenture: Brand LearningAccenture: Search TechnologiesCapgemini: Lyons Consulting GroupCGI: Affecto PlcCGI: Summa Technologies, Inc.Sopra Steria: Galitt
Clearlink, a SYKES company: PortentGenpact: TandemSevenHP Enterprise : Cloud Technology Partners (CTP)IBM GS: CloudigoZalaris ASA: ROC
Accenture: AltimaAccenture: IBB ConsultingAdesso AG: MedgineeringADP: Global Cash CardAtos: Breakaway Group (A Conduent Company)Atos: Healthcare Provider Consulting (A ConduentCompany)Atos: Pursuit Healthcare AdvisorsBooz Allen Hamilton: MorphickCognizant: ZoneCSRA: Praxis EngineeringDeloitte: JKVineDXC.Technology: Logicalis SMCFirst Data Corporation: BluePay
M&AActivity2017YTD(ToOctober2017)
IBM GS: VivantSerco: BTP Systems LLC (‘BTP’)Tieto: AvegaWipro: Cooper
Proprietary│Page28©2017HfSResearch
DigitalM&AActivity2017YTD(ToOctober2017)
Jan
Feb
Mar
Apr
May
Jun
July
Aug
Sep
Oct
Accenture: AltitudeAccenture: Solid-serVisionArvato: Ramyam Intelligence LabHP Enterprise : Cloud CruiserAtos: ESM
Accenture: SinnerSchrader AGAccenture: EndgameAccenture: InvestTechHP Enterprise : Niara, Inc.IBM GS: Agile 3
Accenture: Davies ConsultingAccenture: First AnnapolisAccenture: Focus GroupAccenture: OCTO TechAccenture: Seabury GroupCapgemini: IteliosCognizant: Brilliant ServiceGenpact: Rage Frameworks
Accenture: ArismoreAccenture: GenfourAccenture: iDefense Security Intelligence Services Accenture: KuntsmaanAccenture: SinnerSchraderInfosys: Skytree
Accenture: MediaHiveAccenture: Monkeys & MaudGenpact: BrightClaimHappiest Minds: Cupola TechnologyIBM GS: XCC
Accenture: LabAnswerAccenture: Phase OneAccenture: Solutions IQInfor: BirstWipro: Drivestream
Accenture: ClearheadDXC.Technology: TribridgeMastech Digital, Inc.: InfoTrellis IncTeradata: StackIQ
Accenture: Brand LearningAccenture: Search TechnologiesCapgemini: Lyons Consulting GroupCGI: Affecto PlcCGI: Summa Technologies, Inc.Sopra Steria: Galitt
Clearlink, a SYKES company: PortentGenpact: TandemSevenHP Enterprise : Cloud Technology Partners (CTP)IBM GS: Cloudigo
Accenture: AltimaAccenture: IBB ConsultingAtos: Breakaway Group (A Conduent Company)Atos: Healthcare Provider Consulting (A ConduentCompany)
Atos: Pursuit Healthcare AdvisorsBooz Allen Hamilton: MorphickCognizant: NetcentricCognizant: ZoneDXC.Technology: Logicalis SMCIBM GS: VivantTieto: AvegaWipro: Cooper
Proprietary│Page29©2017HfSResearch
Serviceproviders'contributiontothedigitaldeals.Also,somelatestdigitalrevenuehighlightsofkeyserviceproviders
11% 10%
8% 8%
4% 4% 4%
0%
5%
10%
IBM HCL Wipro TCS Accenture Atos Infosys
Serviceproviderscontributionsbypercentageinthelastoneyear
5,100
4,575 1,943 934 496 256
44% 50%
65%
20% 24% 9% 12%
30% 31%
0% 10% 20% 30% 40% 50% 60% 70%
-
2,000
4,000
6,000
8,000
IBM Accenture Atos TCS Wipro Infosys
DigitalRevenueQ32017($M) Revenue%ofDigital YoYDigitalGrowth%
Digitalrevenues(Q32017)ofsomekeyserviceproviders
*Atos digital revenues includes – Infra & Data Management, Bigdata & Cybersecurity and Worldline (Mobility)
Proprietary│Page30©2017HfSResearch
Crashing headcount begins to slowNumbers are still dropping, but not as steeply as at the
start of the year
Proprietary│Page31©2017HfSResearch
Howdoesperheadrevenuestackupagainstgrowthintheservicesindustry?
Proprietary│Page32©2017HfSResearch
Headcount:WITCHVendorsvs.Pure-PlayBPOVendorsH
eadc
ount
-2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0%
0
200000
400000
600000
800000
1000000
1200000
Q32016 Q42016 Q12017 Q22017 Q32017
WITCHVendorsEmployees
PurePlayBPOVendors(Conduent,EXL,WNS,Genpact)Employees
WITCHVendorsQoQGrowth%
PurePlayBPOVendors(Conduent,EXL,WNS,Genpact)QoQGrowth%
Proprietary│Page33©2017HfSResearch
RevenuePerHead($K):WITCHVendorsvs.Pure-PlayBPOVendorsR
even
ue p
er h
ead
($K)
-4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0%
0.02.04.06.08.010.012.014.016.0
Q32016 Q42016 Q12017 Q22017 Q32017
WITCHVendorsRevenue(USDK)peremployeeRevenueperhead$K
PurePlayBPOVendors(Conduent,EXL,WNS,Genpact)Revenue(USDK)peremployeeRevenueperhead$K
WITCHVendorsRevenue(USDK)peremployeeGrowth%
PurePlayBPOVendors(Conduent,EXL,WNS,Genpact)Revenue(USDK)peremployeeGrowth%
Proprietary│Page34©2017HfSResearch
TotalImpactofAutomationandAIonIT/BPOServicesWorkersacrosstheGlobalServicesIndustry,2015- 2022
HighSkilled
MediumSkilled
LowSkilled01234
5
6
7
8
9
10
20152016
20172018
20192020
20212022
ServicesW
orkers(M
illions)HighSkilled MediumSkilled LowSkilled
Proprietary│Page35©2017HfSResearch
Wrap-up and questions
Proprietary│Page36©2017HfSResearch
Wrap-up
n TheITServicesmarketiscomingoutofthefinancialwildernessandwhilesomeareas– particularlyinfrastructuremanagement– arestillinsteepdeclineasas-a-servicetakeshold,overallrevenuesareboostedbypushesinapplicationservicesandconsulting.
n Digitalishelpingshoreupproviderperformance,contributingsignificantamountsofnewengagementstoprovideraccounts.Franticmergerandacquisitionactivitylikelytocontinueasprovidersshoreupdigitalofferingsandspendtheirwayoutofthered.
n Headcountreductionsareslowingdown,withmanyproviderssqueezingmorerevenueoutofheadcount- whilereductionshaveslowed,there’snothingtosuggestwe’reoutofthewoodsyetasmanyproviderslooktobeconsolidatingreadyforthenextassetsqueeze.